In a matter of first impression within the U.S. Court of Appeals for the Second Circuit, the U.S. Bankruptcy Court for the Eastern District of New York recently rejected a preference defendant’s request to apply a “hindsight analysis” in order to determine that a hypothetical preference waiver would have been granted in its favor, as it claimed to be a “critical vendor” of the debtors in Devices Liquidation Trust v. KMT Wireless, (In re Personal Communications Devices), 588 B.R. 661 (Bankr. E.D.N.Y. 2018).

Background and Bankruptcy Filing

The debtors, Personal Communications Devices (PCD) and Personal Communications Devices Holdings, were wireless telecommunications companies that served as intermediaries between domestic wireless providers and international wireless accessories manufacturers, as distributors of wireless devices and accessories. The debtors’ devices were sold with a comprehensive warranty that required PCD to provide certain repair services. PCD also offered repair and refurbishing services for wireless devices with expired warranties. Nearly all of these repair services were performed by two third-party vendors; KMT Wireless was one of these third-party vendors.